As China implements measures aimed at jumpstarting the REE market, investors are thinking outside of the box regarding where the next viable project will be — and Australia is a prime focus.
Australia’s role as a source of rare earth elements (REEs) is small, yet integral.
The country has a fantastic reputation for being the “lucky energy country” in that it is one of the few nations that boasts large quantities of commodities in addition to the infrastructure and capital means to effectively extract them.
As China implements measures aimed at jumpstarting the REE market, including stabilizing the market through stockpiling, reducing export quotas and clamping down on black market sales, investors are thinking outside of the box regarding where the next viable project will be, and Australia is emerging as a viable option.
Not all about Lynas
When the Australian REE scene is discussed, attention often automatically turns to Lynas Corporation (ASX:LYC), a company focused on creating a fully integrated source of rare earths from mine to market. The firm has been touted as a potential game changer for the industry, but delays in production at its Malaysia-based facility have caused the company’s share price to plummet to levels last seen in May 2009, which has in turn hindered its progress.
Despite the focus on Lynas, investors should also note that a number of Australia-focused junior projects have been making progress over the past few months.
Impressive resource; predefined customer base
Alkane Resources (ASX:ALK) is focused on the Dubbo zirconia project (DZP), located approximately 400 kilometers northwest of Sydney in New South Wales. The DZP has one of the world’s largest in-ground resources of zirconium, hafnium, niobium, tantalum, yttrium and REEs.
The company has made good progress on the project over the past 12 months, while also improving heavy rare earth element (HREE) recovery from its demonstration pilot plant.
Alkane’s most influential success over the past six months came when Australian Zirconia, its wholly owned subsidiary, signed a memorandum of understanding with Shin-Etsu Chemical Company (TSE:4063), a Japanese firm that specializes in the production of separated REEs.
The signing effectively secured Alkane a customer base as it allows Shin-Etsu to purchase a quantity of Alkane’s tolled REEs via an initial five-year offtake agreement. It also gave the project a massive logistical boost in that the Japanese powerhouse will provide technical support and assistance to improve REE recovery from ore to concentrate; that will be particularly beneficial with regard to HREEs.
This partnership has the potential to “significantly increase” both revenue following separation and the quantity of HREE concentrates produced, according to a company press release. The release adds that as a result of changes in market dynamics, DZP’s output potential is now thought to be 1 million tonnes per annum (tpa) based on an initial 20-year mine life.
“Alkane is an above-average risk investment,” said Goldman Sachs analyst Ian Preston in commented to Australian Resources and Investment last year. “We see that risk declining as final approvals are given, funding is completed and production starts.”
The company recently stated that it expects to submit an environmental impact statement for the project and to begin production in early 2016. About 39 percent of revenue will come from zirconium, 22 percent from niobium and the remainder from a combination of light REEs and HREEs.
Expanded resource estimate; robust economics
Arafura Resources (ASX:ARU) is an Australia-based firm focused on rare earth oxides (REOs), phosphoric acid and uranium oxide from its Nolans project. The project is comprised of operations at two sites: the Nolans bore mine in the Northern Territory and the Whyalla rare earths complex in Southern Australia. The company is focused on becoming a high-recovery, low-cost producer of valuable REOs.
Arafura is gaining increased traction in the market with some of its key updated features, including a JORC-compliant rare earth resource that was recently expanded by 52 percent, to 1.22 million tonnes contained REO; an advanced feasibility study; and a robust economic model with full capital payback within four years of operation, according to the company’s latest corporate presentation. The resource is also enriched with didymium oxide, an element that analysts forecast will be in strong demand moving forward.
TheNolans project boasts significant upside when compared with other light REE-enriched projects; it hosts an impressive distribution as well as higher proportions of REEs that feed key growth markets in magnets (neodymium, praseodymium, dysprosium) and phosphors (europium and yttrium). The resource is also amenable to open-cut mining.
The junior’s project base case, which highlights impressive economics over 20 years, includes a net present value of AU$4.3 billion (10-percent discount rate) and an internal rate of return of 30 percent (after tax and capital payback).
Last year, the company received a substantial boost when it was awarded a AU$22.5-million tax refund aimed at research and development (R&D) spending. The refund was devised to promote R&D and innovation, and the company received recognition because of its specialized rare earth extraction process. The project also took a leap forward in December when it released its maiden REE reserve statement, which highlights probable reserves of 24 million tonnes at 2.8 percent REO and 672,000 tonnes of REO.
Strong demand picture; extensive future plans
Hastings Rare Metals (ASX:HAS) is focused on advancing its Hastings project, the largest HREE project in Australia and the fourth-largest project in the world.
The deposit is said to hold resources for over 25 years at 1 million tpa. The Hastings project is expected to produce 10,000 tpa, including 140 tpa dysprosium oxide, 830 tpa yttrium oxide and 590 tpa mixed REO, along with 2,630 tpa niobium oxide and 6,170 tpa zirconium oxide.
In a recent investor Q&A session, Hastings CEO Alastair Metcalf said that at the moment, the supply and demand equation for dysprosium is “extremely strong,” with forecasters indicating that demand will increase by a factor of 2.5 times supply.
The junior also received a much-needed boost recently when reconnaissance mapping and sampling at the site recovered high HREO:TREO ratios from the southern extension. The company confirmed that HREO:TREO ratios for the four recent samples range from 87 to 92 percent, higher than the 84 percent returned from the composite sample from the resource zone.
That means the company will potentially be able to increase rare earth and rare metals mineralization beyond current resources. The Hastings project currently hosts an indicated and inferred JORC resource of 36.2 million tonnes at 0.21 percent TREO, including 0.18 percent HREO plus 0.89 percent zirconium dioxide and 0.35 percent niobium pentoxide. The company plans to undertake more detailed mapping and sampling of the southern extension at the completion of the current rainy season, at which time a drilling program will be considered to test the mineralization at depth.
Metcalf noted that the firm’s short-term plans include having a pilot plant design in place by Q2 2013, commencing a prefeasibility study by Q2 2013, securing a strategic partner by Q2 2013 and commencing engineering and construction by Q1 2014.
Securities Disclosure: I, Adam Currie, hold no direct investment interest in any company mentioned in this article.